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Transparency is a goal that a number of businesses claim to have achieved – yet many leaders still have a tendency to keep certain information under wraps.

Honesty and openness are key elements in gaining the trust and respect of employees, so why do senior executives still feel the need to operate in a state of secrecy?

In some cases, leaders are afraid of the consequences of releasing sensitive information early, such as the possibility of job cuts or other downsizing measures. Executives can feel that withholding this knowledge gives them greater control over the situation and is in the best interests of staff members. They may also worry about panicking employees.

However, in a social media-driven world, organisations are expected to be more transparent than ever before. Enterprises now face significant brand damage if disgruntled workers or customers flock to sites such as Twitter and Facebook to air grievances.

There is also a significant risk of poor morale and higher turnover, with employees unsure over their future role within the company.

The benefits of transparency

Research shows that a lack of leadership transparency not only makes executives appear dishonest, it also impacts how their performance is judged among colleagues and partners.

In 2010, a study in Elsevier’s The Leadership Quarterly Journal outlined the benefits of keeping employees informed on company changes, processes and strategies.The University of Nebraska-Lincoln and Colorado State University-Pueblo researchers suggested that transparency had a positive effect on job satisfaction, staff retention, commitment and performance.

“Our results support that both the level of transparency exhibited by the leader and the leader’s level of positive psychological capacity each positively impacted both participants’ rated trust and perceived effectiveness of their leaders,” the authors noted.

“All study hypotheses were supported with leaders that were represented as being higher in both positive psychological capacity and transparency being rated as more effective than leaders in any other condition.”

In other words, employees hold leaders they consider to be transparent in a higher regard than other executives. This can lead to an increase in staff loyalty and productivity in the workplace, raising morale and mitigating uncertainty.

The challenges of transparency

The research clearly shows there is an advantage for businesses that prioritise transparent leadership, but that is not to say this methodology is devoid of pitfalls.

Companies must strike a delicate balance between effective information sharing and giving away proprietary knowledge that market rivals can use to improve their own products and services. Salary transparency can also present problems, particularly if there are any disparities between wages for employees who are doing the same job.

Making decision-making more transparent can be extremely beneficial, as it allows stakeholders to understand the reasoning behind important changes. On the downside, the entire process can be slowed down, and more transparency does not necessarily translate into better decisions.

Understanding the importance of transparency

Ultimately, even the disadvantages of improving transparency can be seen as benefits, as they often highlight areas of the business that currently aren’t performing well enough.

Writing for Fast Company, the co-founder of social media management company Buffer, Leo Widrich, described his organisation’s decision to increase transparency as “incredibly nerve-racking”.

“Both the great strength and cause of pervasive fear of transparency in corporate America is that, with transparency, you show your employees the company for what it is and you expose how it works. That’s disastrous at terrible companies,” he said. “The power of transparency then is that it drives us to be better – to create a company that’s both great and good.”

According to Mr Widrich, his company takes its cues from Google, which is often considered a market leader for corporate transparency among large multinationals. He cited the firm’s use of the Google Snippets internal system. The platform allows all employees to see what their colleagues are working on, enabling people to make decisions autonomously.

“That limits the power of bad bosses to control the flow of information and makes everyone’s accomplishments recognisable by everyone.”

Are you ready for transparency?

While there are both advantages and disadvantages to boosting leadership transparency at your organisation, in many cases the pros outweigh the cons.

Withholding key information from stakeholders leads to distrust, poor performance, higher staff turnover and a bad reputation both internally and externally. Conversely, leaders who are open and honest about decision-making are perceived to be better at their jobs and inspire employees to raise productivity and offer constructive feedback.

However, for transparency to be truly successful, organisations need to ensure the way they do business is fair, efficient and ethical. Otherwise, they could face significant problems when opening up sensitive company information to a wider audience.